April 3 (Bloomberg) -- Bill Gross, manager of the world’s
largest mutual fund, said the most renowned investors from
Warren Buffett to George Soros may owe their reputations to a
favorable era for money management as expanding credit fueled
gains in asset prices across markets.

The real test of greatness for investors is not how they
navigated market cycles during that time, but whether they can
adapt to historical changes occurring over half a century or
longer, Gross, 68, wrote in an investment outlook published
today entitled “A Man in the Mirror,” named after a song by
Michael Jackson.

“All of us, even the old guys like Buffett, Soros, Fuss,
yeah - me too, have cut our teeth during perhaps a most
advantageous period of time, the most attractive epoch, that an
investor could experience,” Gross wrote. “Perhaps it was the
epoch that made the man as opposed to the man that made the
epoch.”

Gross, one of the co-founders in 1971 of Newport Beach,
California-based Pacific Investment Management Co., is examining
his legacy as the bond shop he built over four decades is
seeking to adapt to an environment that looks very different
from the bull market that fueled Pimco’s growth to one of the
largest money managers in the world. The prospect of elevated
market volatility, an aging population and climate change could
make investing far more challenging in the coming decades, Gross
said.

‘New Normal’

Pimco in 2009 started an expansion into equities to prepare
for an eventual end of the decades-long bond rally. Gross, whose
firm coined the term “new normal” that year to describe an
economic environment characterized by below-average growth,
elevated unemployment and a declining role for the U.S. in the
global economy, suggested those changes could potentially be
part of a longer-lasting shift.

“What if zero-bound interest rates define the end of a
total return epoch that began in the 1970s, accelerated in 1981
and has come to a mathematical dead-end for bonds in 2012/2013
and commonsensically for other conjoined asset classes as
well?” Gross wrote. “What if quantitative easing policies
eventually collapse instead of elevate asset prices?”

Soros is the legendary hedge-fund manager best known for a
1992 bet that the Bank of England would be forced to devalue the
pound. Buffett is the chief executive officer of Berkshire
Hathaway Inc. who built the firm over almost five decades
through takeovers and prescient stock picks, and Daniel Fuss is
a bond manager who runs the top-performing Loomis Sayles Bond
Fund.

‘Achilles Heel’

Gross said investors such as Bill Miller, the stock picker
who beat the Standard & Poor’s 500 Index for a record 15 years
before his streak ended in 2005, are prone to exposing their
“Achilles heel” the longer they stay in the money-management
business. Miller may, in fact, be a great investor, although he
would need five or six more years on top to prove it, Gross
said. Peter Lynch, the Fidelity Investments manager who ran the
Magellan fund, made a smart move by leaving when the “gettin’
was good,” according to Gross. Lynch earned the highest returns
in the industry from 1977 to 1990, averaging annual gains of 29
percent before stepping down.

Gross, who is often referred to in the media as “the bond
king,” runs the $289 billion Pimco Total Return Fund, which has
advanced 7.9 percent over the past five years to beat 94 percent
of peers. He is co-chief investment officer of Pimco, a position
he shares with Mohamed El-Erian. Pimco, which manages about $2
trillion, is a unit of German insurer Allianz SE.

“There is not a Bond King or a Stock King or an Investor
Sovereign alive that can claim title to a throne,” Gross said.